be brokers wishing to capitalize on petroleum shortages. But the promoters have also made their questionable propositions to smaller markets such as those served by three municipally-owned utilities in communities surrounding Los Angeles-Burbank, Glendale and Pasadena.

For example, the problems faced by Burbank's Public Service Department reflect the depth to which residual oil shortages threaten to cripple smaller cities. A community of 89,000 population, Burbank had contracts in mid-1973 for residual oil shipments through June of 1974. But in November of 1973 its supplier, the Carson Oil Company of Carson, California, an independent refiner, lost its crude oil supplies and advised the Burbank Public Service Department that much of the contract commitments for 1974 could not be met.

Burbank's utility, with the approval of its City Council, began to negotiate directly with oil companies. Then, on November 26, 1973, the city adopted a curtailment program to conserve energy. This action led to considerable publicity about Burbank's predicament as the city's curtailment program was one of the first in the United States. As the Burbank situation became known, the Public Service Department began to be visited by would-be brokers. Having little or no background in oil affairs, these promoters followed the same pattern as those making offers to the Los Angeles Department of Water and Power. "What they wanted was a 'ready, willing and able' letter that said the City was prepared to buy oil through them," explained Lynn L. McArthur, Burbank's Senior Electrical Engineer. "But many of these men obviously didn't know very much about oil. They didn't use the right words. Some seemed not to know that crude oil was different from residual. But we heard them out. We had to. We needed oil."

Mr. McArthur said one man who called himself a broker wanted Burbank to make a pre-payment of $145 million. Once his pre-payment was received, the man said, Burbank would get its oil. That proposal was easy to reject, Mr. McArthur said, but others were more credible and were difficult to evaluate. "Remember, we were desperate for oil," Mr. McArthur added. One credible sounding proposition, he said, came from a Pasadena firm whose representatives claimed to have access to significant amounts of residual oil from foreign refineries.

Mr. McArthur, the Senior Electrical Engineer, and James D. Woodburn, the Chief Engineer, first met with the Pasadena company officials in early September of 1973. Nothing came of the initial sessions as Burbank did not consider itself in great need of oil but in December when Department officials realized how serious their oil shortages might be negotiations with the Pasadena firm took on a new dimension of importance.

According to Mr. Woodburn and Mr. McArthur, the company now offered to obtain 10 million barrels of oil at about $8.50 a barrel in shipments stretching out over a year. Mr. Woodburn said the most Burbank could use in a year would be 1 million barrels. Accordingly, the Burbank Public Service Department worked out an arrangement with Glendale's Public Service Department and Pasadena's Department of Water and Power in which the three municipally-owned utilities would each purchase 1 million barrels through the Pasadena

enterprise. Next, it was proposed that the Los Angeles Department of Water and Power, which was in the market for much bigger purchases, could contract to buy the remaining 7 million barrels. The Pasadena company spokesmen said the contract had to be for the full 10 million barrels or there could be no purchase at all, Mr. McArthur recalled.

The sale never took place, however, because the utilities needed to know more about where the oil was coming from and who was refining it and according to what specifications and the Pasadena company spokesmen refused to say. "All they would tell us was the crude oil was from Romania and that it would be refined in Italy," Mr. Woodburn recounted. "There were other questions which we wanted to have answered, such as who would take care of shipping, whom we would deal with, that kind of thing. Either they did not know or they didn't feel they could divulge this information. In any event, they would not tell us." Negotiations with the Pasadena firm broke down completely at a meeting at the Los Angeles Department of Water and Power in December when Los Angeles officials told the company's representatives that they could not buy the oil without more facts about its origin, refining conditions and physical properties. Mr. McArthur said after the meeting he received a telephone call from an official of the Pasadena company. Mr. McArthur described the call from the representative this way: "The man said the Los Angeles Water and Power Department was trying to tell him what to do with his oil and that nobody told him what to do with his oil. He then said that he had told the Los Angeles officials to ‘go — themselves.' I remember thinking to myself at the time that this was not the traditional language I am used to hearing in oil transactions."

Mr. McArthur said no further negotiations or discussions were held with the Pasadena firm after this phone call.

Shortly after their unsuccessful negotiations with the Pasadena firm, Burbank officials entered into a contract with a more established oil company-the Golden Eagle Refinery of Los Angeles-and about 1.3 million barrels of residual oil were purchased at $6.00 to $7.00 a barrel, a price which the city was satisfied with. This amount of oil is expected to carry the city through 1974, Mr. McArthur said. He noted, however, that the residual fuel the Public Service Department bought is high in sulphur content and that the city is asking the Los Angeles Air Pollution Control District for a variance to permit Burbank to burn the petroleum product. Burbank officials hope the variance request will be approved. "If it is rejected, we will have a new problem," Mr. Woodburn said.

LOS ANGELES BUYS OIL AT $25 A BARREL

While promoters with dreams of fast profits have tried-and failed-to deliver residual oil to Los Angeles, more established oil brokers and agents are selling the city large quantities of the needed fuel. But the price is high. In November of 1972, the Department of Water and Power contracted for residual oil at $1.70 a barrel. The city is now paying as much as $25.00 a barrel for Peruvian oil and purchases of $18.00 to $20.00 a barrel are common.

John O. Russell, Fuel Supply Administrator for the Power Operating and Maintenance Division of the Los Angeles Water and Power Department, provided an account of what confusion and expense accompanied the city's efforts to buy Peruvian oil. He cited three separate negotiations that began with oil being tentatively offered for about $6.00 a barrel but increasing over a series of separate discussions over a period of months until a purchase was finally agreed upon at a price of $25.00 a barrel.

On April 17, 1973, the Los Angeles Department of Water and Power sent telegrams to Algeria, Libya, Venezuela, Peru and other oil producing countries to let them know that the city was now shopping in world markets for large quantities of residual oil. Carlos Gayoso of the Peruvian national oil compay, Petroles del Peru, headquartered in Lima, replied by cable June 7, 1973 and said there was a possibility that he would soon have two cargo shipments of 130,000 barrels each for Los Angeles to buy. Mr. Gayoso wanted $6.00 a barrel for the residual oil.

Mr. Russell said the Water and Power Department took the proposal to its Board of Commissioners. They approved the purchase of the 260,000 barrels at $6.00 a barrel. Mr. Russell sent off a telegram to Petroles del Peru, also known as Petroperu, saying Los Angeles was ready to buy the petroleum and requested an executed contract from Mr. Gayoso.

Meanwhile, Union Oil went to Mr. Russell and said they could have the Peruvian oil docked and delivered to the Department for $6.25 a barrel. Atlantic Richfield representatives said they could provide docking for 8 cents a barrel, Mr. Russell said, recalling that the Department was inclined to accept the Petroperu offer and accept the ARCO docking proposal. Then another cable arrived from Mr. Gayoso, this one advising Los Angeles that one of the two shipments could not go to Los Angeles as it had been committed to an oil broker firm known as Inpetrol, a New York enterprise headed by Fernando Zea of Caracas. Mr. Russell notified Carlos Gayoso that the city still wanted the remaining 130,000 barrels. Again, he requested an executed contract.

On Friday, June 15, 1973, Mr. Russell received another wire concerning the Peruvian oil, only now notification was not from Petroles del Peru, the national oil company, but from Fernando Zea, the Venezuelan who headed Inpetrol. In addition, Inpetrol was now being represented by a broker of its own, T. H. T. Associates of Quincy, Massachusetts, an enterprise which the Department of Water and Power had dealt with before. T. H. T. Associates was affiliated with Petrobay, another Quincy, Massachusetts oil enterprise, Mr. Russell said, and he knew the firm to be an established oil broker. The T. H. T.Inpetrol communique advised the Los Angeles electrical utility that the cargo was now 150,000 barrels and the price per barrel would be $6.50.

Mr. Russell said Inpetrol set a deadline on the offer that ended only a few hours after receipt of the wire. This gave the Department insufficient time to go before its Commissioners. Negotiations, therefore, came to a halt.

Mr. Russell said that testimony at a California Public Utilities Commission hearing in San Francisco July 18, 1973 revealed that a privately-owned utility, the Pacific Gas & Electric Company, had bought 1.8 million barrels of residual oil from Petroperu. Mr. Russell said he learned that included in the 1.8 million barrel purchase made by PG&E were the 260,000 barrels which Los Angeles had hoped to buy.

Knowing of the Department's interest in their country's petroleum, Peruvian oilmen came back to Mr. Russell with a similar offer November 30, 1973. Jose Corso of Petroperu wired Los Angeles that he had 150,000 barrels which the city could buy. The bidding was to start at about $13.00 a barrel. About December 1, 1973, Mr. Russell was contacted by Doug Gray of the Time Oil Company of Los Angeles. Mr. Gray said Time would make an offer to buy the Peruvian oil and sell it to the city for $13.50 a barrel if the Department would pay that amount. Mr. Russell said the Department would accept. Mr. Russell said that shortly after Mr. Gray's proposal, Lew Schoen of Phillips Brothers, a New York oil company, called to inquire if Los Angeles was interested in buying 150,000 barrels of Peruvian oil at $19.50 a barrel. Mr. Russell told Mr. Schoen that he had already spoken with other companies and negotiations were focusing on a lower price. The Schoen call was December 3, Mr. Russell said.

On December 5, Mr. Russell heard from John Sheldon of the Douglas Oil Company of Newport Beach, California. Mr. Russell recalled that Mr. Sheldon said that Douglas had bought the Peruvian oil shipment through its parent company Conoco and wished to sell it to Los Angeles for $17.05 a barrel. That ostensibly took the Time Oil Company out of the picture. John Sheldon put the Douglas offer in writing in the form of a telegram. Mr. Russell sent Sheldon a wire accepting the proposal subject to the approval of the Department's Commissioners.

However, Mr. Russell soon received another wire from John Sheldon of Douglas. It was a notification that the Peruvian government had backed off its previous agreement with Douglas and was reopening negotiations. Now Lew Schoen of Phillips Brothers called, reiterating his firm's willingness to sell the city the Peruvian oil at $19.50 a barrel, Mr. Russell said.

Meanwhile, Mr. Russell heard from William McDonald, Vice President of the Edgington Oil Company of Long Beach, California. Mr. McDonald said that Phillips Brothers had offered Edgington 150,000 barrels of Peruvian oil for $19.00 a barrel with the suggestion that Edgington would then offer the oil to Los Angeles for $19.50 a barrel. At this point, Mr. Russell said, he told Mr. Schoen the oil companies and brokers were "fighting among themselves for the privileges of selling the oil to Los Angeles to the Department's detriment." Mr. Russell said he asked Mr. Schoen not to send the Department an offer. Later he heard from Lew Schoen of Phillips Brothers that the 150,000 barrels of oil had been sold to a buyer in New Jersey for $22.50 a barrel.

On December 7, 1973, Mr. Russell received word from John Sheldon of Douglas that another load of Peruvian oil was available and that he would try to get it for Los Angeles for $17.85 a barrel. Mr. Russell said that Lew Schoen of Phillips Brothers called December 10 and reported that he could sell the cargo at $24.00 a barrel. Mr. Russell said

that John Sheldon of Douglas also called back December 10. Mr. Sheldon said the first cargo of residual oil out of Peru was sold at a price of $16.50 a barrel. With all the confusion and conflicting offers, the Department of Water and Power was still faced with one overriding concern. It was that the city was running out of residual oil. It was confident of meeting all electrical requirements only through February of 1974. This consideration was important when Department officials received on December 20 an offer to buy 170,000 barrels of Peruvian residual oil at the highest price yet, $25.00 a barrel.

The offer came from C. D. Mallory & Co., a New York oil broker. Mallory was representing Cirillo Brothers, also of New York. Mr. Russell said both firms were known to him as being established oil companies. The Commissioners of the Department of Water and Power approved the offer.

And that is how Los Angeles came to pay $25.00 a barrel for Peru

vian oil.

LOS ANGELES TRIES TO AVOID PAYING HIGH PRICES

Paying $25.00 a barrel for oil they once paid $4.50 a barrel for was an unfortunate experience for the Los Angeles officials. City leaders are trying to enlist the help of the Federal Government to avoid paying that much again. City Hall believes the problem could be solved to a considerable extent if oil companies and brokers were precluded in the future from forcing America's utilities to bid against each other and drive up prices. The solution, city officials believe, is to have the Federal Government institute central purchasing of all foreign oil sold in the United States. In that manner, Los Angeles spokesmen say, suppliers would have to sell in this country at more standardized prices, with fluctuation in price resulting only from legitimate world market conditions and not from an effort to gouge individual utilities which are in desperate need of oil, as Los Angeles was last December.

On December 27, 1973, a week after his city had paid $25.00 a barrel for Peruvian oil, Los Angeles Mayor Thomas Bradley wrote to President Nixon and asked the President to have Federal authorities, under the allocating program, set up a procedure whereby the Government could serve as a "common purchaser" of foreign oil for all the nation's utilities. Under this plan, the utilities would pay back the Federal Government for all purchases made on their behalf. In his letter, Mayor Bradley wrote:

A major problem in this [oil shortage] area is our experience with the price of fuel oil from foreign sources. This has now reached $17 to $18 per barrel, with one instance of $25 per barrel. Indications are that costs may go even higher. It is obvious that not only is there competition in the world market, but there is competition within the United States for this foreign oil, and oil dealers are taking advantage of the emergency to manipulate prices paid by domestic consumers to higher and higher levels. Often promoters will offer the same oil to three or four potential customers, boosting the asking price until the highest firm bid is received and will then sell to that purchaser. These practices are devastating to the com